The Harami Pattern
Bullish and Bearish Harami
The harami pattern is the opposite of the engulfing pattern, except that the candlesticks in the harami can be the same color, and is quite similar to the inside day pattern in OHLC charts. Like the engulfing pattern, the harami pattern consists of two candlesticks with the first candlestick being a large candlestick and the second being a relatively small candlestick. The name is derived from the Japanese word for pregnant, with the first candlestick seen as the "mother" with a large real body that completely enclosing or embodies the smaller second candlestick, creating the appearance of a pregnant mother. The second candlestick may appear to be a spinning top or a doji. When the second candlestick is a doji, the pattern is called a harami cross.
The color of the second candlestick is not important. More often than not the second candlestick will be the opposite color of the first candlestick. However, the location of the harami within an existing trend and the direction of that trend is important. The harami is a trend reversal pattern and must therefore appear in an existing trend but it should be seen in the context of the chart. Thus, if the harami appears at or near a support or resistance line, or a trend line, it becomes more significant. When the harami appears in an uptrend it is a bearish signal when it appears in a down trend it is a bullish signal. The appearance of the harami, and the short real body of the second candlestick, is a signal that indecision and uncertainty following a sudden surge in movement of the trend is causing the trend to lose momentum. In an uptrend, it means that buyers have failed to follow up on the surge of activity and close the second candlestick at or near the high of the previous candlestick. And in a down trend, it means that sellers have failed to close the second candlestick near the low of the previous candlestick. In both cases this weakness indicates that a trend reversal may be imminent.
The Harami Cross
The harami cross pattern is more significant as it contains a doji, which is a candlestick with no or very little real body. As mentioned in the discussion on candlestick types, a doji is formed when the close price and the high price are the same or very close. They tend to indicate indecision and uncertainty in the market. Also, a doji with long the shadows has the greater the significance than a doji with short shadows.
The Tweezers Top and Tweezers Bottom patterns are minor trend reversal patterns that consist of two candlesticks with the same approximate high or the same approximate low respectively. The two candlesticks should have alternating colors with the first confirming the current trend and the second indicating a weakness in the trend. The reliability of these patterns increase when the first candlestick is has a large real body while the second candlestick has a short real body.
In the Tweezers Top pattern, the first candlestick should be a bullish candlestick with a ...
Three Black Crows
The Three Black Crows pattern is the bearish counterpart of the Three Advancing White Soldiers pattern. It is a reversal pattern that consists of three bearish candlesticks that should come into consideration when it appears within an established uptrend, where it indicates a weakness in the uptrend and, potentially, the beginning of a down trend.
Each of the three candlesticks in the Three Black Crows pattern should be relatively long bearish candlesticks with little or no lower shadows. Each of the candlesticks in this pattern should mark a steady decline in ...
The Hanging Man and Hammer candlestick patterns are related trend reversal patterns that may appear at the end of an uptend or downtrend respectively. This is a single candlestick pattern that with a short real body, little or no upper shadow and a long lower shadow that must be at least twice as long as length of the real body. The color of the candle is not import, only its location in the current trend.
The Hammer pattern is called a takuri in Japanese, which means testing the water for its depth. This is the bullish version of the pattern. A bearish ...
The Evening Doji Star
Star patterns are trend reversal patterns that consist of three candlesticks, with the middle candles stick forming the star. A star is a candlestick with a short real body, like a doji or a spinning top, that gaps away from the real body of the preceding candlestick. There are three basic star patterns: the morning star, which appears in a downtrend; and the evening star and the shooting star, which appear in an uptrend.
The morning star and the evening star have a doji or a spinning top as the second candle...
Continuation patterns indicate that there is a greater probability of the continuation of a trend than a trend reversal.. These patterns are generally formed when the price action enters a consolidation phase during a pre-existing trend. During the consolidation phase, the trend appears to change; however, the continuation of the preceding trend is more probable.
Some of the common continuation patterns include the cup and handle pattern, flags and pennants, symmetrical triangles, ascending triangle and desc...
Reversal patterns mark the turning point of an existing trend and are good indicators for taking profit or reversing your position. Generally, trend reversal patterns indicate that a support level in a downtrend or a resistance level in an uptrend will hold and that the pre-existing trend will start to reverse. These patterns allow you to enter early in the establishment of the new trend and are usually result in very profitable trades.
The common reversal patterns include the double tops and double bottoms, triple tops and triple bottoms, broadening tops and broadening bottoms, ...